Norhisham Abd Bahrin                            Muhammad Nazwan Kamal Din
Partner, Mergers & Acquisitions            Associate, Mergers & Acquisitions
Corporate                                                 Corporate
Azmi & Associates                                   Azmi & Associates
(603) 2118 5000 Ext 5016                       (603) 2118 5000 Ext 5074
norhisham@azmilaw.com                      nazwan@azmilaw.com

Azmi & Associates
A: 14th Floor, Menara Keck Seng
203 Jalan Bukit Bintang
55100 Kuala Lumpur,
Malaysia
T: (603) 2118 5000
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The Malaysian Parliament passed the Civil Aviation Commission Act (“Act”) on the 9th of April 2015 and is expected to enter into force soon. The Act gives birth to the Malaysian Aviation Commission (“Commission”/ “MAC”).

JUXTAPOSITION BETWEEN MAC & DCA

The Commission will inherit certain jurisdictional powers from the Department of Civil Aviation (“DCA”), as well as expand the roles and functions of the Commission to cover a more thorough aspect of the aviation industry. The Commission will become the economic regulator, while the DCA will remain the technical regulator of the aviation industry. The Commission and the DCA share the same arena, but each affects the industry in a different manner.

The most notable shift of power is with due regards to Licensing and Charges. The Commission will essentially take over the issuance and renewal of air service licenses (scheduled services) and permits (non-schedule services) from the DCA. Further, the Commission will be responsible in administering, allocating and managing air traffic rights and slot allocation.

The distinction between the functions of the MAC and DCA are listed below:

MALAYSIAN AVIATION COMMISSION

DEPARTMENT OF CIVIL AVIATION

Regulating the economic matters relating to the civil aviation industry.

Promote enhancement to organizational and system capacity.

Provide a mechanism for the protection of consumers.

Strengthen the regulatory framework for civil aviation governance.

Administer, allocate and manage air traffic rights.

 Assertion of world class safety for aviation operations.

Monitor slot allocation for airlines or other aircraft operations.

Assurance for security in the aviation industry.

Provide a mechanism for dispute resolution between the provider of aviation services

DCA has overview over air traffic management, airworthiness, flight operations, management services, air traffic inspectorate, aviation security and airport standard.

FINANCIAL IMPLICATIONS

Under Section 39(2), the application for licenses shall be accompanied by such fees as may be prescribed by the Commission. This raises a possibility that the fees could be set at a higher value compared to what is currently charged. Being a cost sensitive industry, aviation players are easily rattled by any increment of fees/charges imposed upon them, and the ripples will ultimately be felt by the customers.

Additionally, the Commission is permitted to impose fees, costs or any other charges as it deems fit for the services rendered by the Commission as enshrined under Section 18(2)(f) of the Act.

Amongst the notable powers of the Commission is that it is given the authority to set and regulate charges for aviation services. Charges that are imposed such as passenger service charges, landing fees and parking fees, may be reviewed and regulated as deemed fit by the Commission. As Malaysian Airports Berhad monopolizes the Airport services in Malaysia, it is hoped that the Commission may play the role of check and balance in ensuring that charges are fair and competitive in relation to the global market.

CONSUMER PROTECTION

The Commission will be able to hear consumer complaints pertaining to the aviation industry, and this intent to protect the interests of consumers should be celebrated. This will further address issues pertaining to unjust terms and conditions imposed by airlines for the sole reason of mitigating losses, flight delays, cancellations and poor customer service.

COMPETITION LAW

The Act contains certain clauses with the intent to promote a healthier marketplace among airlines, such as, preventing agreements between entities which restrict or distort competition, abuse of dominant position by an entity and also to prevent mergers that diminish competition, domestically and internationally.

GOVERNANCE OF THE COMMISSION

In order for the Commission to be fair and just towards all stakeholders, it has to remain independent. However, since the Executive Chairman is appointed by the Prime Minister, the independence of the Commission may be called into question by certain quarters.

PROTECTIONISM

Certain industry players raised their concerns that the Act may be used as a protectionism mechanism in favor of certain parties. This is nothing new as protectionism is not a rare practice of flag carriers in the aviation industry. Singapore Airlines encountered such protectionist measures in the past when it was shut out from the Toronto market after complaints from Air Canada, and was also forced to cease Boeing 747-400 operations into Jakarta in wake of protests from Garuda Indonesia when it was unable to compete technologically.

ASEAN OPEN SKIES POLICY

The implementation of ASEAN Open Skies Policy in 2015 (“AOSP”), is expected to cause an increased application for other ASEAN member states’ airlines to fly into Malaysia. The Commission is expected to play a more prominent role in regulating and accommodating the AOSP.

CONCLUSION

The Act gives the Commission a vast array of powers that cover a wide spectrum of the civil aviation industry. By setting up the Commission and the streamlining of responsibilities, both the MAC and DCA will have a more focused job scope. This is expected to increase standards and reshape the Malaysian aviation industry.